Welfare Reform: The Impact of Housing Benefit Changes

Reforms to Local Housing Allowance (LHA) were the first significant welfare reforms in this Parliament and are the only reforms to be implemented thus far. London Councils analysis has examined the impacts of the LHA reforms on rents, the location of claimants and on homelessness. This briefing outlines the main findings of this analysis.

Background

In the 2010 Emergency Budget, the government announced a number of changes to Local Housing Allowance, or LHA, (the method by which rates of housing benefit paid to most tenants in the deregulated private rented sector are calculated) including:

• Maximum LHA rates reduced from 50th percentile to 30th percentile, meaning that theoretically the 30 per cent cheapest rental properties in an area should be affordable to households in receipt of housing benefit, rather than the cheapest 50 per cent.

• The deductions made to housing benefits payments, due to the presence of non-dependent adults deemed able to contribute to rent costs, will be increased for three years, having been frozen since 2001.

• 5 bedroom rate removed. Maximum levels of housing benefit for each household size were introduced with a maximum qualification of 4 bedrooms. The new rates are: • £250 for a one bedroom property • £290 for a two bedroom property • £340 for a three bedroom property • £400 for a four bedroom property

• Shared room rate increased to 35 meaning that single adults under 35 only qualify for a HB payment equal to the cost of a room in a shared house. The age limit was previously set at 25 and under.

The aim of these changes and the government’s wider welfare reform agenda are to simplify the system of benefits, to make work pay and to ensure that households on benefits are not able to live in homes out of reach of the average working family. High housing benefit payments were said by the government to be key drivers of rising private rents. The Chancellor has announced that LHA rates will rise by inflation (Consumer Prices Index) in April 2013 and then by 1 per cent in each of the following two years. He also announced that some of the savings from this measure would be set aside to exempt some areas from below inflation LHA rises.

**Analysis**

London Councils analysis shows that rents in London rose faster in the 18 months following the implementation of most of the LHA reforms than in any other Government Office Region and at a higher rate than inflation. London’s lower quartile rents rose by almost 9 per cent. Despite a 16 per cent rise in the number of LHA households in London over these 18 months, the rise and fall in LHA households has not been uniform across London boroughs.

Three London boroughs saw reductions in number of LHA households over the period; Kensington & Chelsea (-16 per cent), Westminster (-13 per cent) and Islington (-1 per cent). Several other inner London boroughs such as Camden, Lewisham and Southwark experienced rises in their numbers of LHA households well below the 16 per cent London rise.

A small number of boroughs experienced a rise of well over 16 per cent; the most affected being Enfield (+27 per cent), Newham (+37 per cent) and Barnet (+43 per cent).

In some boroughs with a relatively small private rented sector, a significant increase in the number of LHA households appeared to be correlated with bigger increases in lower quartile rents. For example, Barnet’s lower quartile rent rose by £245 per month over the 18 month period. In other areas, rent rises in the absence of significant increases in LHA households indicate that rents are being driven up by underlying demand for private accommodation from non-LHA households.

Homelessness acceptances rose in London from around 2,700 in the quarter before the LHA reforms to a high of 3,750 in the first quarter of 2012. London households in temporary accommodation rose from 35,850 when the reforms were implemented to 38,170 in quarter 3 of 2012, having previously fallen in every quarter since 2005.

**Commentary**

The number of households in private rented accommodation in receipt of HB/LHA in London rose from 55,000 in November 2008 to 197,000 by the time the reforms to Local Housing Allowance were implemented.

This is due partly to an insatiable demand for housing of all kinds in the capital and the high rents that follow from this demand. Lowest quartile rents in London were higher than median rents in any other region at the time of the LHA reforms; the gap has grown further since.

In many cases in London, the maximum LHA levels introduced are significantly lower than the 30th percentile rate meaning that far fewer than 30 per cent of properties are available to LHA households. As expensive rent areas become out of reach to households in receipt of housing benefit, areas of lower rent appear to be experiencing disproportionate increases in LHA household growth that in some cases drive private rents up much higher.

There is a risk that the social sector size criteria could drive demand for smaller private rented accommodation as tenants of larger social properties look to downsize. Furthermore as the benefit cap is introduced there is a potential for further migration of HB recipients from higher rent areas to lower rent areas. The government has said that households in receipt of housing benefit should have to make the same decisions over housing affordability as non-HB households. However, there are knock on implications for London insofar as migration between boroughs has the potential to increase localised service pressure. Furthermore, homeless presentations and requirements for temporary accommodation resulting from the various reforms to welfare represent additional costs to local authorities that must be met from existing resources.

The Chancellor has announced that funding is set aside from the three-year below inflation uprating of LHA to exempt some areas, although the government has not yet been indicated which areas will be eligible for funding. Clarity on this important issue is important to aid future planning.

Author: Ben Dixon, principal policy and projects officer (T: 020 7934 9894) Click here to send a comment or query to the author

Links: Download the full report: Tracking Welfare Reform: Local Housing Allowance

This member briefing has been circulated to: Portfolio holders and those members who requested policy briefings in the following categories: Leadership, devolution and democracy